Tea importers have backed the recommendations of the Competition Commission of Pakistan (CCP) to rationalise taxes on imports of black tea to discourage its smuggling and revisit the negative list under the transit trade agreement. Shoaib Paracha, Chairman, Pakistan Tea Association (PTA) speaking to journalists at his office Thursday, urged the government to rationalise tariff by reducing tax imposed on imports and increasing the cost of tea landing in Pakistan for Afghanistan.
"The smuggling of black commodity is causing a loss of $ 50 to 60 million to the kitty every year," the PTA chairman said. Quoting a study conducted by the CCP, Paracha said the cost of legal imports is higher than the smuggled tea. A price difference is a significant competitive disadvantage to honest importers. As far as future prospects are concerned, based on population and consumption growth, the tea sales are expected to grow by 10-12%. In the branded tea segment, the demand for tea bags is expected to grow by more than 15% as forecast by the CCP.
Shoaib Paracha said the CCP has conducted the competition assessment of the tea industry in Pakistan.
In this study, he said, the CCP recommended that the smuggling is the biggest threat to the domestic tea industry, causing loss of millions of rupees to the government and forcing legal importers out of business. The government must take firm action to curb the illegal trade. A combination of tax and enforcement tools can be used to control the practice. The incentive to smuggle comes from the difference in taxation on tea imported for Pakistan and that of imported for Afghanistan.
He said use of the transit facility for black tea may be prohibited or a limit may be applied to the volume of imports. It is, therefore, essential that this matter may be taken up by Afghanistan Pakistan Transit Trade Coordination Authority (APTTCA), Ministry of Commerce with Afghan counterparts, so as to curtail black tea import that is in excess of Afghan demand.
According to a latest study on tea industry prepared by the CCP, a major challenge faced by the tea industry in Pakistan is smuggling. Under the agreement for transit trade, Afghan imports land at Karachi port, which are then dispatched to Afghanistan. However, instead of entering Afghanistan or even after its entry in Afghanistan, the tea is brought back to Pakistan.
This smuggled tea is then sold in the local market along with the legally imported tea. The import cost of tea imported for Pakistan is estimated to be around 32% greater than the tea imported for Afghanistan due to various taxes paid by domestic importers.
Due to the cost difference, legally imported tea cannot effectively compete with smuggled tea. The authority dealing with transit trade says that there are no scanners for containers on Afghan border for transit trade, to confirm the similarity of goods entering Afghanistan or received in Karachi.